Rambus Inc. (RMBS) signed a patent licensing agreement with MediaTek Inc. for an undisclosed sum, yesterday. Per the terms of the agreement, MediaTek can use Rambus’ patented technology for its integrated circuit products for five years. Rambus will receive royalty payments based on the shipment of these devices during the contract period.

In 2010, Rambus accused MediaTek of unlawfully using its patented inventions. But last Friday, a judge at the International Trade Commission (ITC) negated the claims and gave the plaintiff a clean chit.

Keeping aside the judge’s final ruling, which is due in July, both companies reportedly announced that they have settled all previous claims mutually.

Despite a legal tussle, MediaTek opted for Rambus’ technology. Customers are demanding utmost flexibility in electronic products. As MediaTek is a leading System-on-Chip (SoC) provider, innovative technology licensed from Rambus will help the company to deliver advanced chips to be used in computer or electronic goods.

We believe that the deal is indeed good news for Rambus. But there remains a possibility of paying a penalty held by the court as the final decision comes.

Before this one, Rambus has sealed licensing deals with NVIDIA Corp. (NVDA) and Broadcom Corp. (BRCM). Though continuous licensing deal wins for Rambus is not new, anti-trust or patent infringement battles continue to make life difficult.

Rambus has won a favorable ruling from the ITC for lawsuits against Nvidia, Hewlett-Packard Co. (HPQ), Asus and Samsung. But it lost legal battles against Micron Technology Inc. (MU), Hynix, LSI Corp. (LSI) and STMicroelectronics (STM). The company’s shares lost significant value on the news of losing the case as the negative outcome blew investor sentiment. Shares fell 5.29% yesterday.

Despite the current volatility in the share price, we believe that Rambus’ growth story remains intact. But we remain on the sidelines given the Fed’s decision to declare three of its patents invalid. This could impact its growth to the extent that it is dependent on the three patents. Moreover, Japanese chip-maker Elpida’s declaration of bankruptcy is also a concern for Rambus, as the company accounted for around 10.0% of its annual revenues. This would be a direct hit to its patent licensing royalty.

Currently, Rambus has a Zacks #3 Rank, indicating a short-term Hold rating.


 
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